Platform Black’s Louise Beaumont on why the time is Now for Auction Markets – Part II

The second installment of our discussion with Platform Black’s co-founder Louise Beaumont looks at how they onboard companies, and manage the risk for their investors.

Trade Financing Matters: What type of Risk Management do you provide Investors who buy these Receivables and how do you onboard suppliers?

Louise: There are two levels of vetting. We first vet you when you become a member. For SMEs this means that we check your trading record on Companies House, and your credit score and rating on both Experian and Bureau van Dijk. We also seek to understand your business, your end debtors, and their payment terms. And we run a ‘rogue spotter’ check. The second check point is when companies trade on our auction platform.

Trade Financing Matters: What checks do you do when an invoice is uploaded to the platform?

Louise: When the SME trades, we look to ensure that all the documents uploaded with the invoice support the auction; is there a supporting purchase order? delivery note? timesheet & expenses? Have we seen confirmation from the end debtor that this invoice is accepted for payment? SMEs who use our service know they get a better cost of finance if they disclose more information.

Trade Financing Matters: How do you control for Fraudulent Invoices?

Louise: Frauds like fresh air invoicing and carousel fraud are significant risks for the traditional whole book invoice finance industry. Our model is based on individual invoices being auctioned, so there is a great deal more scrutiny invoice-by-invoice than there is in the traditional model. Each piece of supporting documentation is reviewed, and we run a number of verification checks. We also look for common directors. And we have an outsourced ‘rogue spotter’ company, which identifies risks including risk of fraud.

Trade Financing Matters: Who is buying these receivables?

Louise: Our Investors are mostly institutional; including funds, family offices, and ABLs, with some high net worth individuals.

Trade Financing Matters: Is it like eBay where you can bid to the last minute?

Louise: Our auctions end at 5pm on a business day. Investors bid within their investment strategy - they know their target level of risk rated return, set their floor bids accordingly and then wait. Of course, some investors do like to bid at the very last moment.

Trade Financing Matters: How do you make money?

Louise: We make money in two ways. Firstly, we take a small percentage expressed as a transaction fee from the SME for using our auction platform. The fee ranges from 0.50 % to 0.90% of the amount advanced depending on the days invoice is financed (30 to 90). This fee is set by the SME.

Secondly, we take 10% of the investors’ gain.

The principle is that we make money only when successful trades take place – i.e. when SMEs get the finance they need, and when investors make a return.

Trade Financing Matters: How are you different than TRE or MarketInvoice?

Louise: TRE don’t yet operate in the UK, so it’s hard to compare our service with theirs. With regard to MarketInvoice, our SME members tell us that, for them, we are two to three times less expensive than MarketInvoice. Our investors tell us that, for them, we are half the price of MarketInvoice. We also have a significant focus on Supply Chain Finance.